There are numerous risks when you buy, sell, or create a new company, that’s why a purchase and sale agreement is important. However, buying a company or business is significantly less dangerous and highly profitable compared to setting up a new business. On the other hand, this will also depend on the quality of your selection and your assessment of the success of a company’s business.
Sadly, most people buy companies or businesses based only on feelings and not on rational thinking. I suggest that you read the following and ensure that you speak with legal counsel before processing any sort of documents such as a letter of intent or a purchase and sale agreement.
Audited Financial Statement (3–5 years). Do not depend on the in-house financial records or statements for they are not reliable. More often than not, profitable businesses are the most desired ones than those that do not earn much.
1. Tax Returns in the purchase and sale agreement (3-5 years). The supplied financial statement should fit what is on the tax returns. If there are some adjustments to the figures presented, ensure that the information is correct. Confirm the accuracy of the changes made on the financial statements including the tax returns and any adjustments made related to finances.
2. Accounts receivable along with accounts payable. A thorough examination should be performed both on the accounts receivable and accounts payable and this should be present in the purchase and sale agreement. You need to know the customers and their payment activities including how the company pays its customers as well.
A substantial earning and a decent credit standing are essential factors of managing a business. On the other hand, if there are existing court cases filed against the company, this is also one good indicator of whether the business of the company is struggling or if they can still keep going.
3. Key Personnel. A lot of businesses have employees that are significant to the company. You should know if they still would like to retain their jobs and what are their needs. I suggest that you check the employee file to find out their employment duration, payroll, or anything related to employees. For sales staff, there might be concerns that need to be dealt with such as inquiring if their customers will also stay in the company or not.
Furthermore, if the owner works for the company and is also one of the key employees, a thorough evaluation should be performed to check if the owner can be replaced by someone. In this situation, I recommend that for the final agreement, a non-competition clause and numerous protections should be supplied.
4. The Purchase Price of the Business. The majority of businesses can be bought below the selling price. There must be an intensive discussion about the price, terms, and conditions along with taxes. Furthermore, a qualified business appraiser can offer good tips for the final appraisal. On top of that, when statements on numerous favorable areas of the business are done, these must be added as warranties to the purchase and sale agreement.
The information mentioned above should be present in the agreement when you plan to buy or sell a business for security and protection. Regardless of whether you are a seller or a buyer, you should review the contract with my supervision to know your rights and to protect yourself from any lawsuits or legal violations that you might get into in real estate transactions.
Together with brokers and real estate agents who are among the major people in real estate, I am open for a partnership and I can also assist on the ins and outs on the legal aspects of real estate. Moreover, if your case is quite critical, I am here to help you review your contracts and negotiate for you. In this situation, I can offer you my full assistance to the legalities involved in real estate transactions to secure your protection. You can contact me at (305) 921-0976 or email me at Romy@juradolawfirm.com.